INTRATESCLASS - 1 Interest Rates simple and compound...

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Unformatted text preview: 1 Interest Rates ¡ simple and compound interest ¡ discrete and continuous compounding and growth and rule of 72 ¡ Present value,discounting and Yield to maturity ¡ Consols=Perpetuities P=C/r 1 ¡ Bond pricing and yield (bugs bond val) ¢ coupon rate, current yield, yield to maturity, yield to call, zero coupon bonds and maturity ¡ Discounted dividends model P=D/(r-g) ¡ Nominal vs real rates – Fisher’s equation Course Issues ¢ No class for US next week ¡ Assignment 13 due AFTER thanksgiving break ¢ Extra Credit-this week ¢ Clicker updates 2 ¢ Investment Game ¡ Round 4 –Bonds ¢ Advisement ¢ Final Exam Info – next week Interest Rates ¡ Cost of borrowing/ return for lending funds ¢ Price or rental price ¢ Why? – pain of deferring, pleasure/benefit of present consumption ¡ APR - yield to maturity ‘ correct measure’, includes all costs, annualized. Regulation Z- 3 Truth in Lending Act ¢ APY – annualized return 2 More ¡ Nominal rate = # of dollars expressed as % of amount ¡ Real rate-what you can buy with $ ¢ ‘adjusted’ for inflation ¢ r real = r nominal – exp inflation ¢ Or r nominal= r real + exp inflation ¢ Real rate should matter in decisions ¡ In SR, with inflation unchanging, real correlated with nominal ¡ Return (rate of return) – total % gain/loss ¢ Interest earned + capital gain/loss 4 Interest Rates 5 Yields & Spreads 6 3 Compound growth...
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INTRATESCLASS - 1 Interest Rates simple and compound...

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